III. Facts Relating to the Proposed Settlement
On December 24, 1999, Applicant4 sold USRC5 to Alliance Group Services, Inc. (Alliance).6 On January 6, 2000, Applicant notified the Commission of the sale by letter. Applicant also asked that USRC's CPCN be cancelled. USRC subsequently filed Advice Letter No. 4 on February 3, 2000, requesting approval of the sale and requesting cancellation of its CPCN. The Advice letter was approved. Applicant's sale of USRC violated Section 851 that requires prior Commission approval of the sale. In addition, USRC failed to provide its customers with notice of the sale as required by Section 2889.3(a).
In addition to its interexchange operations, USRC sold Internet World Wide Web site hosting (web-hosting) services. On March 7, 1999, USRC stopped offering web-hosting services, and in July 1999, it stopped soliciting interexchange customers. On October 5, 1999, USRC sold its web-hosting business and assets, and stopped operating web-hosting services.
CSD received complaints from 1,590 USRC customers in 1998 and 1999 alleging that USRC charged them for web-hosting and/or interexchange services that the customers did not authorize.7 Pursuant to an agreement with CSD, Applicant provided web-hosting customers with $80,277.88 in reimbursements or credits for web-hosting charges and internet related fees.8 Applicant also remitted to the Commission a check for $9,141.23, which is the amount of undeliverable restitution, for deposit in the State General Fund.
On October 19, 1998, Applicant purchased a controlling interest in Choctaw9, six months before this application was filed. On August 31, 2001, Applicant sold its interest in Choctaw to Reconex Acquisition Corporation (Reconex). On September 6, 2001, 1-800-Reconex, the parent of Reconex, filed Advice Letter No. 14 requesting approval of the transaction.10 The Advice letter was approved. Applicant's purchase of Choctaw violated Section 852 that requires prior Commission approval of the acquisition. In addition, Applicant's sale of Choctaw violated Section 851 that requires prior Commission approval of the sale.
4 VarTec Holding Company, a wholly owned subsidiary of Applicant, owned a controlling interest in USRC, and sold it to Alliance Group Services, Inc. It also purchased and subsequently sold a controlling interest in Choctaw. 5 USRC was granted authority to resell interexchange services by Decision (D.) 97-04-070 (U-5773-C). 6 Alliance was granted authority to resell interexchange services by D.98-08-069 (U-6047-C). 7 This includes Pacific Bell complaint records listing 1,468 complaints. 8 On August 15, 2001, CSD filed a motion for approval of a proposed settlement with Applicant. The settlement was signed by Applicant on May 25, 2000, and by CSD on June 5, 2000. However it was not filed until after the web-hosting restitution had been made. The settlement also provided for $25 in restitution to 101 customers who alleged only unauthorized long distance charges. CSD subsequently discovered additional violations by Applicant. As a result, the additional restitution was not made, and the motion was not pursued. The settlement is included as Exhibit 1 to Attachment A of this decision. 9 Choctaw was granted authority to resell local exchange and interexchange services by Decision (D.) 98-07-028 (U-6008-C). 10 1-800-Reconex was authorized to resell local exchange services by D.97-09-034 (U-5835-C), and interexchange services by D.01-06-013 (U-6546-C).
